What to Watch: Majors – Topic 4, Nudging Trades to Align with Climate Goals

I used to run a state oil and gas trade association, so I can tell you firsthand that our job was to take tough policy positions so our companies didn’t have to. Stakeholders aren’t having it anymore, and the international oil and gas majors are making sure that their public statements on policy are aligned with the organizations to which they belong. When your company starts taking a proactive stance on climate and carbon (and as you know, I think you should), you’ll need to make sure that your trade associations follow suit.

Both of these things are true:

  • Oil and gas trade associations are built to advocate for the best collective interests of their member companies and have long opposed recognizing or responding to climate policy.
  • International majors are evaluating, pressuring, and leaving trades that aren’t joining the climate conversation proactively.

The problem path forward:

Three initiatives underway are worth following to keep you up to speed on the developments in this space.

  • Way back in 2015, a number of companies including BP, ConocoPhillips, ExxonMobil, Oxy, and Shell (as well as Google, Yahoo, and Facebook) left the American Legislative Exchange Council at least in part over its position on climate change. Notably, investors were pressuring companies like Oxy to review the memberships at annual meetings then. 
  • Recently Shell announced it would leave the American Fuel & Petrochemical Manufacturers (AFPM) in 2020. As I’ve discussed previously, Follow This (an activist investor group who has bought shares in Shell in order to advance climate-related shareholder resolutions) has pushed Shell across the board on climate action.
  • Shell’s departure from AFPM was driven by the review they published of their trade associations in 2019. In the report, they assessed the positions of 19 trade associations that were selected “because their positions on climate-related policies have brought them to the attention of investors and NGOs.” They found some misalignment with nine trades, and “material misalignment” with the one organization they left. Since then, Shell has released a new report providing updates on the actions taken to address these discrepancies.

It matters because:

An age-old lobbying strategy has just disappeared. Investors, politicians, regulators, and community members will hold your company accountable to be consistent between your own climate and carbon stance, and those of the associations to which you belong to. 

The critical mistake companies are making

Conducting business as usual. The trades are a great place to share information, collaborate on best practices, and create momentum for political and policy success. They are also now under the scrutiny of your stakeholders. 

Seize the daySuccessful companies will: 

  • Watch with interest. These developments are happening in real time. Here’s what I’ll be watching:
  • Engage with your trades. When I ran COGA, for most of my tenure I had 40 board members who made decisions by consensus. So… I really do know firsthand how challenging moving the needle can be. Nevertheless, you provide your time and money to trades, and they represent your company. Engage in their evolution. As this series has argued, you don’t need to debate climate science and politics directly; you can address the rising social risk to the industry of inaction.
  • Incorporate this topic into your risk analysis. Your alignment with the trades is likely not an immediate threat to your business. Nevertheless, it would be prudent to include the topic as you look ahead and conduct a social risk analysis for your business.

The international oil and gas majors’ response to climate and carbon pressure are evolving quickly. You can get caught up on the prior installments of this series with What to Watch MajorsTopic 1 – Tech InvestmentsTopic 2 – Decarbonization Commitments, and Topic 3 – Policy Commitments. We’ve got one more installment coming your way next week.

Are you engaging with the trades on climate and carbon? Message me and tell me about it.

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